Professional Tax is a direct tax levied by the State on persons who practice some profession and derive an income out of the same. The tax is eligible for deduction from an individual’s salary while filing the income tax returns
Professional tax is not something unheard of, especially by salaried professionals as it appears in their Form 16 or payslips as a deduction from income. But the question is if they really know what it is and why it forms a crucial part of their salary slip. Most of them would be able to understand professional tax payment as a mere deduction from their income, but it is important to understand its various components to get a wider picture of what professional tax is and why it is applicable to the salaried class alone.
While income tax is imposed by the Central Government, professional tax is inflicted by the respective state or union territory in India. The professional tax is deducted by the employer from the wages of the employee and is thereafter deposited with the State Government. While the employers do this on behalf of their salaried employees, the other classes of individuals are liable to deposit the tax by themselves. The rate of professional tax varies across the states as per the income of the individuals, but it does not exceed a maximum of ₹ 2500.
Significance:
Unlike the name suggests, professional tax is not a tax levied merely on professionals. This tax is levied on any individual who earns a livelihood through profession, employment, trade, or calling. The tax is also applicable to entrepreneurs, and freelancers, provided their income exceeds the stipulated threshold. The professional tax is a deductible sum under the Income-tax Act, 1961, and is reduced from the taxable income.
Professional tax is applicable to the following classes:
- Individuals
- Hindu Undivided Family (HUF)
- Companies/Firms/Co-Operative societies and other associations of individuals.
Professionals who earn from practicing as lawyers, teachers, doctors, chartered accountants, etc are mandated to deposit the professional tax. It might be interesting to note that professional tax is however not levied in a few states like Arunachal Pradesh, Himachal Pradesh, Delhi, Haryana, Uttar Pradesh, Uttarakhand, Andaman and Nicobar Islands, Daman & Diu, Dadra, and Nagar Haveli, Lakshadweep, Jammu & Kashmir, Punjab, Rajasthan, Chandigarh, and Goa.
Accountability of the Employer to Deposit the Professional Tax:
By practice, business owners deduct professional tax from the salaries of their employees and deposit the same to the appropriate government department. A return statement, which includes the proof of tax payment is presented to the tax department in the prescribed form within the specified time by the employers.
Procedure for Payment:
The procedure for payment of professional tax varies across the states in India. The online registration can be accomplished by carrying out the following steps:
Step 1:
Log in to the official website and select ‘New Professional Tax Registration.’
Step 2:
The user is navigated to the next page wherein account details have to be entered or if the user is registering for the first time, the user has to click ‘Not Registered?’
Step 3:
After providing the details such as your email Id, mobile number, etc., the username and password that is secured with your mobile number and email will be received
Step 4:
The user is navigated to the page where the service request has to be selected by clicking ‘Create Service Request’ and choosing ‘Professional Tax’ in the drop-down box under ‘Service Category’. Under Service, the user must select ‘New Registration of Professional Tax’ and click ‘Continue’
Step 5:
After filling in the required details the user has to upload the necessary documents such as Proof of Incorporation of the company, Memorandum of Articles, Proof of office establishment, Certificate from the Commercial Tax Department, Details pertaining to bank account and PAN card, details of the employer and employee, etc
Step 6:
After uploading the stated mandatory documents, the user has to click ‘Submit’. The user is not required to deposit any fee for submitting this application. The acknowledgment slip will be generated thereafter along with the Professional Tax Registration Number. It is termed as PTNAN-Professional Tax New Account number.’
Once the above-stated procedures are accomplished the professional tax can be deposited online by using the preferred mode of payment.
Professional Tax Rates in TamilNadu:
| Sl. No. | Half Yearly income (Rs.) | Old Tax (Rs) | New Tax (Rs) |
| 1 | upto 21,000 | – | – |
| 2 | 21,001 – 30,000 | 75 | 100 |
| 3 | 30,001 – 45,000 | 188 | 235 |
| 4 | 45,001 – 60,000 | 390 | 510 |
| 5 | 60,001 – 75,000 | 585 | 760 |
| 6 | 75,001 and above | 810 | 1095 |
Advantages of Professional Tax Registration:
- Professional tax registration ensures Professional Tax Compliance is easily met by the professionals
- Enables the easy and periodical payment of professional tax without defaulting, thus avoiding penalties
- Registration ensures a smooth and hassle-free way of paying the taxes
- Professional tax is one of the sources of income for the government that facilitate the implementation of schemes for the social welfare and development of the State
- A tax deduction can be claimed on the professional tax that was paid earlier.
Failure to deposit the professional tax at the stipulated time attracts penalties. Also, businesses that default to register professional tax, or delay the payment without any reasonable cause might have to encounter fines, late fees, or imprisonment.
Who Is Responsible to Collect Professional Tax?
The Commercial Tax Department of each and every state is responsible for collecting professional tax in India. The department is responsible for administering the levy and collection of tax revenue in the state, and it formulates and implements regulations regarding such taxes.
Who Is Responsible to Pay Professional Taxes?
The liability to pay professional tax may vary depending on the state and the income earned. Generally, employers deduct professional tax from the salaries of their employees and pay it to the state government. Self-employed individuals, freelancers, and businesses are also responsible for paying professional tax.
Exemptions in Professional Tax
The exemptions in professional tax may vary depending on the state. Generally, certain categories of individuals such as senior citizens, disabled persons and members of the armed forces may be eligible for exemptions
Consequences of Violation of Professional Tax Regulation
The consequences of violating professional tax regulations may vary depending on the state. Generally, late payment of professional tax may attract penalties, interest charges and action by the state government.
FAQs
Here are the answers to your FAQs about professional tax:
1. What is professional tax, and who is liable to pay it?
Professional tax is a tax levied by state governments on individuals and businesses engaged in professions, trades, and employment. The liability to pay professional tax may vary depending on the state and the income earned. Generally, employers deduct professional tax from the salaries of their employees and pay it to the state government.
2. Is professional tax refundable if I overpay or change my job?
Professional tax is not refundable if you overpay or change your job. However, you can claim a refund if you have paid more than the actual tax liability due to an error or mistake.
3. How is professional tax calculated for individuals and businesses?
The calculation of professional tax may vary depending on the state and the income earned. Generally, professional tax is calculated based on the income earned or the number of employees in the case of businesses..
4. Can I claim exemptions or deductions on my professional tax liability?
The exemptions and deductions on professional tax liability may vary depending on the state. Generally, certain categories of individuals, such as senior citizens and disabled persons, may be eligible for exemptions or deductions.
5. How often is professional tax deducted from an employee's salary?
The frequency of professional tax deduction from an employee's salary may vary depending on the state and the employer. Generally, professional tax is deducted on a monthly or quarterly basis.
6. What are the consequences of not paying professional tax on time?
The consequences of not paying professional tax on time may vary depending on the state. Generally, late payment of professional tax may attract penalties, interest charges and legal action by the state government.
7. Are there any specific forms or documents required for professional tax compliance?
The forms and documents required for professional tax compliance may vary depending on the state. Generally, employers are required to register for professional tax and obtain a certificate of registration. They are also required to file periodic returns and maintain records of professional tax deductions.
8. Is there a maximum limit to the professional tax amount an individual or business has to pay?
The maximum limit to the professional tax amount an individual or business has to pay may vary depending on the state. Generally, the maximum limit is capped at a certain amount per year. For example, for those individuals earning a salary of Rs 10,000 – Rs 14,999, the professional tax payable is nil.
9. Are self-employed individuals and freelancers also required to pay professional tax?
Yes, self-employed individuals and freelancers are also required to pay professional tax if they are engaged in professions, trades, or employment that are subject to professional tax.
10. Can professional tax be paid online, and what are the accepted payment methods?
Yes, professional tax can be paid online in some states. The accepted payment methods may vary depending on the state and the mode of payment. Generally, payment can be made through net banking, credit card, or debit card.
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